You are on page 1of 8

19-1. Economic explanations of consumer behavior include: Ego gratification. Lack of self-confidence. Social status. Prices and income.

19-2. If an individual demands a good, it means that he or she: Has a strong desire for the good. Is willing and able to purchase the good at some price. Must need the good. Prefers the good to all other choices.

19-3. Which of the following is not a determinant of demand? Desire for the good Income of the consumer The cost of the factor inputs The price of other goods

19-4. Marginal utility for a good is computed as: Total utility divided by quantity. Quantity divided by total utility. The change in quantity divided by total utility. The change in total utility divided by the change in quantity.

19-5. The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the: Law of demand. Law of diminishing marginal utility. Law of diminishing total utility. Total revenue rule.

19-6. Jose goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because: The price of the fourth plate is too high. He has reached the point of increasing marginal utility. The marginal utility of the fourth plate would be zero or even negative. His total utility would increase with the fourth plate of food.

19-7. Total utility is maximized when: Price is less than marginal utility. Price is equal to marginal utility. Marginal utility is zero. Marginal utility is maximized.

19-8. The price elasticity of demand is equal to: Percentage change in quantity demanded times the percentage change in price. Unit change in price divided by the unit change in quantity demanded. Percentage change in quantity demanded divided by the percentage change in price. Unit change in quantity demanded times the unit change in price.

19-9. Along a downward-sloping linear demand curve, the price elasticity of demand: Is constant at each point on the curve. Varies throughout the demand curve. Tends to be elastic at relatively low prices. Is equal to the slope of the demand curve.

19-10. Assume the price elasticity of demand for U.S. Frisbee Co. frisbees is 0.5. If the company increases the price of each frisbee from $12 to $16, the number of frisbees demanded will: Decrease by 14.3 percent. Decrease by 33.3 percent. Increase by 20.0 percent. Increase by 7.0 percent.

19-2. Demand entails both the willingness and ability to pay for goods and services.

19-1. Prices and income are just as relevant to consumption decisions as are more basic desires and preferences.

19-4. Marginal utility refers to the amount of satisfaction one gets from consuming the last unit of a product.

19-3. An individual's demand for a specific product is determined by tastes, income, expectations (for income, prices, tastes), and the availability and price of other goods. The cost of the factor inputs is a determinant of supply.

19-6. As long as marginal utility is positive, total utility must be increasing, but when marginal utility is negative or zero, consumption of one more good will decrease total utility or not add to utility at all.

19-5. As a rule, the amount of additional utility we obtain from a product declines as we continue to consume it. For example, the third slice of pizza isn't as desirable as the first.

19-8. The response of consumers to a change in price is measured by the price elasticity of demand. Specifically, the price elasticity of demand refers to the percentage change in quantity demanded divided by the percentage change in price.

19-7. As long as marginal utility is positive, total utility must be increasing, but when marginal utility is negative, consumption of one more good will decrease total utility; therefore total utility is maximized at the consumption level where marginal utility is neither positive or negative.

19-10. Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 0.5 times 28.6% - the percentage change in price using the midpoint formula ((16 - 12)/((16 + 12)/2)).

19-9. At low prices, the demand for goods is relatively inelastic. At higher prices, the demand for a good is relatively elastic. Hence, the price elasticity of demand depends on where one is on the demand curve.

19-11. If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded. 6 percent increase 6 percent decrease 0.6 percent increase 0.6 percent decrease

19-12. For product XYZ, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by: 1 percent for each 3.5 percent decrease in price, ceteris paribus. 1 unit for each $3.50 decrease in price, ceteris paribus. 3.5 percent for each 1 percent decrease in price, ceteris paribus. 3.5 units for each $1 decrease in price, ceteris paribus.

19-13. Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to: 0.20. 1.29. 0.78. 0.29.

19-14. A demand curve that is completely inelastic is: Horizontal. Vertical. Upward sloping. Downward sloping.

19-15. When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus: Demand is elastic. Demand is inelastic. Demand is unitary elastic. Elasticity is impossible to calculate.

19-16. Which of the following would most likely have a price-elasticity coefficient greater than 1? Cigarettes Gasoline in the short run Electricity Airline travel in the long run

19-17. Ceteris paribus, as the number of substitutes for a good increase, the: Price elasticity of demand should become smaller. Price elasticity of demand should become larger. Cross-price elasticity of demand should become negative. Income elasticity of demand should become negative.

19-18. Ceteris paribus, the longer the time period, the: Smaller the income elasticity for the good. Less elastic the demand for the good. More unitary elastic the demand for the good. More elastic the demand for the good.

19-19. The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired in case of a full stadium, so assume your task is to maximize revenues from ticket sales. Your advice to the owner should be: Set the ticket price in the inelastic region of the demand curve in order to increase revenues. Raise the price as high as possible until the number of tickets sold begins to fall. Set the price as low as possible to make sure the stadium is always full. Set the price of tickets at the unitary elasticity price.

19-20. If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will: Rise by 10 percent. Fall by 10 percent. Not change. Rise by 100 percent.

19-12. Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Therefore a 1 percent decrease in price will cause a 3.5 percent increase in quantity demanded.

19-11. Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 0.6 times 10.

19-14. A vertical demand curve implies that an increase in price won't affect the quantity demanded. In this situation of completely inelastic demand, consumers are willing to pay any price to get a particular quantity.

19-13. Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Therefore price elasticity of demand is equal to ((4 - 3)/((4 + 3)/2))/((25000 20000)/((25000 + 20000)/2)) or 1.29.

19-16. The long-run price elasticity of demand is higher than the short-run elasticity because consumers have more time to adjust and find alternative products. While demand for necessities is relatively inelastic, which goods are necessities is influenced by the availability of substitute goods. Consumers of cigarettes and gasoline would argue that very few if any substitutes exist to cigarettes and gasoline.

19-15. If price elasticity is less than 1, we say demand is inelastic and that consumers are not very responsive to price changes.

19-18. The long-run price elasticity of demand is higher than the short-run elasticity.

19-17. The greater the availability of substitutes, the higher the price elasticity of demand. For example, the high elasticity of demand for fish reflects the fact that consumers can always eat chicken, beef, or pork if fish prices rise.

19-20. If price elasticity of demand is unit elastic, higher prices result in no change in total revenue.

19-19. The impact of higher prices on total revenue depends on the price elasticity of demand. Higher prices result in higher total revenue only if demand is inelastic. If demand is elastic, lower prices result in higher revenues. Therefore to maximize revenue, a firm should charge the price at the point where elasticity goes from elastic to inelastic, in other words is equal to 1.

19-21. If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should: Increase the price of coffee. Decrease the price of coffee. Keep the price constant since a price increase or decrease will cause total revenue to fall. Advertise since this is only option that will increase total revenue.

19-22. Carter has budgeted $40 per month for candy bars. No matter how the price of candy bars changes, he spends exactly $40 per month. Carter's price elasticity of demand for candy bars must: Equal zero. Be unitary. Be very inelastic since the amount he spends is not responsive to a price change. Be very elastic since the quantity he demands will change significantly if the price changes.

19-23. If the price of Good X falls and total revenue rises, then: Demand for Good X is inelastic. Demand for Good X is unitary elastic. Demand for Good X is elastic. The price elasticity of demand for Good X is equal to 1.

19-24. Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus: Rise by 0.29 percent. Rise by 3.5 percent. Fall by 0.29 percent. Fall by 3.5 percent.

19-25. If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for housing is closest to: 0.6. 1.8. 2.9. 3.5.

19-26. Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls: Good X is an inferior good and good Y is a normal good. Good X is a normal good and good Y is an inferior good. Goods X and Y are substitute goods. Goods X and Y are complementary goods.

19-27. MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be: Positive. Negative. Equal to zero. Undefined.

19-28. Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is: 1.80. 1.00. 0.83. 0.56.

19-29. Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded. The value of the cross-price elasticity of demand is: -1.71. -0.58. 1.71. 0.58.

19-22. Prices changes will not cause the total amount spent on a good (revenue) to change if the demand is unit elastic.

19-21. Higher prices result in higher total revenue only if price elasticity of demand is inelastic, price elasticity is less than 1.

19-24. Income elasticity of demand is equal to the percentage change in quantity demanded divided by percentage change in income. If income falls by 1 percent and income elasticity of demand is equal to 3.5, the demand will fall 3.5 percent.

19-23. Lower prices result in higher total revenue only if price elasticity of demand is elastic, price elasticity is greater than 1.

19-26. A normal good is a good for which demand increases when income rises while an inferior good is a good for which demand falls when income rises.

19-25. Income elasticity of demand is equal to the percentage change in quantity demanded divided by percentage change in income. When demand falls from 23 million to 20 million or 14 percent using the midpoint formula, income elasticity demand is roughly 14/4 or 3.5.

19-28. The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of one good divided by percentage change in price of another good. When the price of video games fall 66.7 percent and the demand for scooters falls 120 percent, the cross-price elasticity of demand must be 1.80.

19-27. The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of one good divided by percentage change in price of another good. The cross-price elasticity of demand will be negative for complements because a decrease in the price of MP3 players will cause an increase in demand for MP3 files.

19-29. The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of one good divided by percentage change in price of another good. Therefore the cross-price elasticity of demand is 1.71 (12 -7).

19-30. In Table 19.1, the marginal utility of the third unit is: 3. 5. 6. 30.

19-31. In Table 19.1, the total utility when four units are consumed is: 33. 30. 6. 3.

19-32. Refer to Table 19.3. Suppose Michael has $28 to spend on cola and pretzels. What combination should he purchase in order to maximize his utility? 3 colas and 4 pretzels 1 cola and 5 pretzels 3 colas and 1 pretzel 2 colas and 3 pretzels

19-33. Refer to Table 19.3. If Michael has $40 to spend on cola and pretzels, what is his maximum utility possible? 40 174 190 208

19-30. Marginal utility is the change in total utility obtained by consuming one additional good or service. Total utility increases from 24 to 30 when the third unit is consumed, an increase of 6 utils.

19-31. The total utility when three units are consumed is 30 and the fourth unit adds 3 additional utils, which causes total utility to increase to 33.

19-33. To maximize utility, the consumer should choose the good that delivers the most marginal utility per dollar at each step. With $40 Michael would consume 3 colas and 4 pretzels which would bring him a total of 174 utils.

19-32. To maximize utility, the consumer should choose the good that delivers the most marginal utility per dollar. The first pretzel has a MU per dollar of 7.5, the second pretzel and first cola have a MU per dollar of 5 and the third pretzel and the second coke have MU per dollar of 4. Once Michael buys 3 pretzels and 2 colas, he will have spent his $28 and maximized his utility.